Business columnist

Savage price discounting of up to 70 per cent, sales racks in the aisles and ''buy one get one free'' deals will ramp up as retailers try desperately to shift unwanted stock in a climate of withering consumer confidence.

The disastrous stock exchange debut of PAS Group, a grab bag of fashion brands including Metalicus and Yarra Trail, speaks volumes about the impact the federal budget has had on consumer sentiment in the retail sector - as well as the weather.

PAS Group took a hiding on Monday, closing 16 per cent lower as shareholders dumped the stock in reaction to profit downgrades and negative trading updates by a growing list of retailers including Pacific Brands, Super Retail and the Reject Shop.

The latest company to flag weaker-than-expected sales for the year was JB Hi-Fi, which released a trading update on Thursday confirming it would meet its full-year profit guidance but that its full-year sales would be weaker than expected.

Advertisement

The plethora of profit downgrades and trading updates turns the spotlight squarely on department store giants David Jones and Myer, which are yet to release a trading update. Some analysts, including Deutsche Bank, have already started to cut margins to allow for the likely increase in sales discounts.

A report by Deutsche Bank - Reducing Estimates on the Back of Weak Consumer Sentiment - warns that none of the retailers are ''immune'' to the sharp fall in consumer sentiment post the lead-up to the federal budget. The report says this, combined with a very warm start to the winter season, has prompted a number of downgrades from retailers.

''Of the retailers which haven't yet downgraded, we see the most risk to this year's numbers for Myer, Premier Investments and Speciality Fashion.''

To put it into perspective, market analysts have estimated a $5 billion budget drain. Citi said the sentiment effects of the budget should ''disappear quickly'', but it estimates that from July 1 the typical household is $602 worse off a year. ''The 'stimulus' from the government or Reserve Bank has disappeared and retailers will need to rely on wages growth or lower savings (higher house prices) to boost retail sales,'' the report said.

In percentage terms it estimates a 2 per cent drag on retail spending next year.

The various companies that have provided trading updates in the past few weeks have cited the budget and/or weather as the reason for lower-than-expected sales. For instance, Super Retail's June trading update attributed the lower-than-expected sales result over May to mid June to a ''significant downturn in consumer confidence since the federal budget''.

It is also supported by the number of retail shops closing down or the savage sales being offered.

It plays into the findings of the latest edition of debt collector Prushka's ''canary in the coalmine'' briefing paper, which found that many consumers were unable to pay off debts due to the increased cost of living and household bills.

The latest Westpac-Melbourne Institute index rose in May but is pointing to a ''below-trend'' rate of growth later this year and into 2015.

The weather is also at play in the retail funk. Fairfax Media property editor Carolyn Cummins wrote a prescient article on May 26 flagging problems in the retail sector due to the weather. She wrote that retailers, including shopping centre landlords, were holding crisis talks on how to deal with unseasonably warm weather.

''In the past three years, end-of-financial-year discounting has started on June 1, but with warm weather in NSW and Victoria beating May records, sale signs are already in shop windows,'' Cummins wrote. ''For some retailers, especially those reliant on the snow season, a sale sign may be seen as a white flag.''

These factors will have a knock-on effect on property trusts with an exposure to retail. Some retail properties were suffering from flat to negative rents and some retail trusts have been offering discounts to new tenants.

While the weather, the federal budget and the online disadvantage due to the GST-free threshold can be blamed on the lacklustre spending on retail in Australia, other factors are at play.

Customers continue to spend more online and overseas. Australia's online retail spending increased to $15 billion for the year to April 2014, or by 6.4 per cent, according to NAB's latest online survey. It says online represents 6.6 per cent of traditional retail spending, which is still lower than the US and Europe.

The brutal reality is service still has a long way to go and so does product range, quality and mix.

There are no end of stories about department stores ignoring customers or offering poor service.

Over the past few years retailers have blamed everything but themselves for the reduced spending that has plagued Australian outlets off and on.

But an unseasonably warm winter and the slump in confidence seems to be more than just an excuse. Nevertheless, better online shopping and improved customer service in the shops would help.